Today, over 7 MMb/d of new crude oil pipeline and crude oil export projects are under various stages of development. The pipeline projects are designed to debottleneck the Rockies and the Permian and access premium Gulf Coast pricing. The crude oil export capacity facilitates sending the influx of crude to the global markets. Today’s energy market commentary will focus on the timing of the build out in pipelines and crude oil export capacity and the misalignment in timing between the two for 2019.
Of the proposed pipeline capacity, over 2.1 MMb/d is under construction and will bring incremental supply into an already congested Gulf Coast market over the next 12 to 24 months. The hope for many producers is that new pipelines will collapse the widening spreads between domestic oil prices and Brent. However, new pipelines are only one piece of the oil price puzzle. Crude oil export capacity in each market must also grow to accommodate the influx of supply. The map below highlights the expected build out in crude oil pipeline capacity over the next several years and destination markets.
In March, over 200 Mb/d of new crude oil capacity went into service to the Gulf Coast. As a result of new pipelines, crude oil exports reached a new peak. Data from the EIA weekly indicates that crude oil exports reached 3.4 MMb/d in mid-March. The chart below shows that since mid-2017 the Texas Gulf ports are showing the largest increases in volumes exported. However, increasing exports are stressing existing crude oil export capacity and contributing to wider Brent and WTI Cushing spreads (red line on left side of chart below). New inbound pipeline capacity through the end of the year will further stress dock capacity until new docks are built.
The pie charts on the right-hand side of the graphic above highlight the fact that there could be over 1.4 MMb/d of new pipeline capacity online in late 2019 connecting the Permian to the Corpus and Houston market. Furthermore, there is a significant imbalance between the delivery points for the pipelines compared to the geography of dock expansion projects for the same time frame. Corpus Christi dock expansions are lagging the new pipeline capacity with several facilities not expected to enter service until 2020 or 2021.
If dock capacity is in short supply and new pipelines are not able to either re-route barrels away from Corpus or eke out scarce dock space, then WTI-Midland prices in the Permian may only see temporary relief. Furthermore, as is highlighted in BTU Analytics’ price forecasts in our Oil Market Outlook Report, continued export congestion could also have ramifications on WTI- Cushing prices as well due to the inter-connectivity between the two pricing benchmarks.
As highlighted in the dark blue arrows on the map above, companies have announced upwards of 6 MMb/d of new pipeline capacity. The new capacity could dramatically alter historical oil pricing relationships. For example, the proposed Seahorse Pipeline or the Capline Reversal Project could finally directly connect the Louisiana refining and export market to growing US oil production and relieve crude oil dock constraints in the Corpus and Houston markets. For more on these projects and forecasts of major US oil pricing hubs, such as WTI Cushing, WTI Midland, LLS, Guernsey, MEH, and more, see BTU Analytics’ Oil Market Outlook Report, where these hubs, and more, are researched, updated, and published on a monthly basis.
